Anger, Fear, Concern: Manchester's Tier 3 Lockdown Will Be 'Hard To Bear' For The Property Industry

Late on Tuesday afternoon Greater Manchester entered a Tier 3 lockdown, meaning an end to most hospitality and leisure business and renewed injunctions to work from home. All forms of private sociability had already been banned. It is a postcard from a new wave of lockdowns.

The moves come after a week of resistance as local political and business leaders led by Mayor Andy Burnham attempted to modify a worst-of-both-worlds local lockdown which, they feared, would fatally damage the local economy whilst failing to control the coronavirus.

During Tuesday the ground shifted as Manchester’s local leaders softened their demands for furlough cash for workers in the hospitality and leisure sector. In the end talks over financial support for local businesses collapsed, and the government in London imposed its own solution.

The decision means limited support for local business and yet more pain for the delicate city centre’s ecosystem of jobs, retail, restaurants and entertainment. It comes three months after Greater Manchester entered an earlier, slightly lighter lockdown, which prevented household mingling. The rate of coronavirus infection continued to climb regardless.

The concern for many in the property market is that local lockdowns have a Hotel California element: You can check in, but you can never check out. Without that optimism the commercial property market feels — and objectively is — very subdued.

“The COVID-19 pandemic and associated lockdowns have severely disrupted office markets across the world and here in Manchester," CBRE Northern Region Managing Director John Ogden told Bisnow. "Leasing volumes since the start of lockdown are around 58% lower than for the same period last year, and 55% down on the five-year average Q1 to Q3 figures. This is unlikely to improve until there is a significant change in the pandemic.” 

Ogden, like many others, fears for the future of the city centre. “A Tier 3 lockdown will mean that there are fewer people in the city centre and the impact this has on the retail and hospitality sector will be hard to bear," he said. "The economic impact of further restrictions and even the ongoing debate which creates uncertainty can be paralysing for the local economy.”

What is killing the Manchester economy is uncertainty, Canning O’Neill director Mark Canning told Bisnow.

“Central government’s strategy for fighting the virus seems to change with the wind. When that happens no one can plan or put individual strategies in place with any degree of confidence, and this lack of confidence is what is pushing us into a downward spiral,” he said, praising Burnham for asking the government to explain itself.

From a commercial property perspective the market was beginning to show signs of recovery in June following the first national lockdown, as companies were directed to open their offices and encourage their employees to return to the workplace, Canning said. This was turned on its head when Boris Johnson signalled a U-turn in September, when the government instructed companies to divert staff back to their bedrooms and kitchens.

“The larger occupiers appear to be in a virtual state of paralysis, afraid to get the COVID rules wrong and be sued," Canning said. "This hangs like a cloud over the market. It is not quite the same for the smaller end of the market.  However, looking is one thing, committing is another and here the figures show the impact of the lockdown. Our view is that if we go into another serious lockdown it will inevitably push recovery much further down the road.”

The saving grace is that Manchester’s office market was not oversupplied, said Canning, but further drift and uncertainty will do damage. “Without a plan we will just continue to drift further up the creek to who knows where,” he said, with a hint of despair that is widely shared.

But what if the damage is already done? Nicole Roe is a recently appointed expert adviser to the government’s High Street Task Force and a Manchester-based planning associate at Barton Willmore. She fears the tipping point may already have been reached.

Roe sees landlords struggling with reduced or no rental income whilst the value of their property plunges: servicing debt is an increasing problem, she said. The result is physical deterioration of the already shuttered building stock in the retail and hospitality sectors.

“Andy Burnham’s actions, resisting the government, speak volumes because we’re almost at the point of no return already,” Roe said. “The big worry is that a local lockdown spans Christmas, which is when many businesses might have hoped to recover their revenue. The Manchester Christmas markets have already been cancelled, which is a huge blow to the local economy.

“There is no end in sight. People say things will feel different in the spring, but we don’t know that,” she said.

Market data offers little reason for encouragement. According to Manchester Office Agents Forum, 28 Q3 office deals resulted in 69K SF of office take-up. This is less than a quarter of the 295K SF recorded in Q3 2019 or, put another way, it represented a reduction of approaching 80%.

The largest letting of the quarter took place in August with the Spanish Consulate acquiring 11K SF at Topland’s The Chancery. Salford Quays and Trafford saw Q3 take-up of 45K SF and South Manchester’s business parks of 40K SF. 

Agents are determined to see the bright side. “Despite another challenging quarter we remain positive that take-up activity will rebound in 2021," Savills Associate Andrew Cooke said. "Enquiry demand picked up during Q3 and whilst the vast majority of these have been SME’s, we anticipate seeing other large corporates making decisions on their real estate strategy over the coming months.” 

There is much brave talk of momentum building, and before Tuesday’s lockdown maybe some evidence of it happening: Savills told Bisnow its Manchester office enquiry levels in Q3 were up 3% on the same period in 2019, a sharp turnaround from the 25% drop in enquiries, year-on-year, it recorded in Q2. Tuesday’s announcements about Tier 3 restrictions are sure to muffle any recovery.

Manchester City Council is pressing ahead with its own plans to rethink the city centre, with an emphasis on growing tech, media and life sciences businesses and big-name corporates. Essentially it will try to build on existing strengths.

Maybe the office market will build on existing strength, too? Analysis from Cushman & Wakefield suggested Manchester’s large flexible floorspace sector could be its saviour.

Cushman & Wakefield’s Coworking 2020: What’s Next on the Flexible Workspace Horizon? predicted that occupiers will gravitate to serviced floorspace.

It said that in 2019 nearly 530K SF was acquired by flexible workspace operators in regional markets, predominantly in Manchester and Birmingham. So far in 2020, activity has been significantly impacted by the ongoing pandemic, and take-up from flexible workspace operators has reached just under 30K SF, accounting for 4.2% of total take-up across the “Big Eight” regional cities.

In Manchester, flexible workspace accounts for just 3.6% of total office stock.

“Over the past few months we are also beginning to see forward-thinking landlords/developers providing flexible offerings alongside the standard leased space within buildings," Cushman & Wakefield Head of Manchester Offices Rob Yates said. "Schroders already does this successfully at City Tower with its Elevate concept and many other landlords are now considering how they too can enter the sector.” 

The report predicts an increase in the number of landlords entering the sector and delivering their own product, following the lead of the likes of British Land, Landsec, The Crown Estate and Bruntwood. It also anticipates a greater spectrum of products to be delivered under the flexible workspace umbrella, such as managed space and cat A+ space.

There is something positive to keep the spirits up if you look hard enough. But Manchester’s lockdown has been foisted on the city against its wishes with a slimmed-down financial safety net for local businesses, which local politicians regard as inadequate protection for the economy. The city-region’s Labour council leaders and Conservative MPs, businesses leaders and property market share a sense of dismay and anger at the government that will last a long time.